Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.Yes
[X] No [ ]

Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation
S-T during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).Yes
[ ] No [X]

Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company.

Large accelerated filer [ ]

Accelerated
filer
[X]

Non-accelerated filer [ ]

Smaller reporting company [ ]

1

Indicate by check mark whether the registrant is a shell
company (as defined in Rule 12b-2 of the Exchange Act).Yes [
] No [X]

Indicate the number of outstanding of each of the registrants
classes of common stock, as of the latest practicable date: The registrant had
591,042,000 shares of common stock, $0.001 par value outstanding at December 9,
2016. The registrant has no other class of common equity.

The accompanying notes are an integral part of these
consolidated financial statements.

4

Xiangtian (USA) Air Power Co., Ltd. Consolidated
Statement of Operations and Comprehensive Loss (Stated in US Dollars)
(Unaudited)

For the

For the

Three

Three

Months

Months

Ended

Ended

October 31,

October 31,

2016

2015

Revenue

86,760

66,610

Cost of sales

$

71,599

$

62,015

Gross profit

$

15,161

$

4,595

Operating expenses:

Selling expenses

13,027

4,510

General and administrative expenses

693,825

359,142

Total operating expenses

706,852

363,652

Loss from operations

(691,691

)

(359,057

)

Other (expenses) income

Other expenses

(54

)

-

Non-operating income

7,188

131,790

Exchange loss

-

(17,928

)

Total other (expenses) income, net

7,134

113,862

Net loss before
taxes

$

(684,557

)

(245,195

)

Income tax benefit

33,183

32,852

Net loss after
taxes

$

(651,374

)

(212,343

)

Foreign currency translation adjustment

(199,856

)

(163,503

)

Comprehensive loss

(851,230

)

(375,846

)

Net loss per common share  basic and diluted

$

(0.00

)

$

(0.00

)

Weighted average number of common shares outstanding -
basic and diluted

591,042,000

591,042,000

The accompanying notes are an integral part of these
consolidated financial statements.

5

Xiangtian (USA) Air Power Co., Ltd.Consolidated
Statements of Cash Flows(Stated in US
Dollars)(Unaudited)

For the

For the

Three Months Ended

Three Months Ended

October 31,

October 31,

2016

2015

Cash flows from operating
activities:

Net loss

$

(651,374

)

$

(212,343

)

Adjustments to reconcile net
loss to net cash used in operating activities:

Depreciation

74,297

67,951

Rent contributed
by shareholders as paid-in capital

1,500

1,500

Gain on termination of capital
lease

-

(130,960

)

Changes in operating
assets and liabilities:

Accounts receivable

2,665,569

296,555

Other receivables

306,152

(127,161

)

Prepayment

(2,242,905

)

(76,914

)

Inventory

(592,576

)

3,100

Due from related party

(71,693

)

9,988

Other current asset

(142,627

)

(124,498

)

Accounts payable and accrued
liabilities

(752,366

)

(148,282

)

Other payables
and tax payables

21,946

(15,095

)

Advance billings on contracts

303,207

47,782

Deferred tax liability

(36,258

)

(83,388

)

Net cash used in operating activities

(1,117,128

)

(491,765

)

Cash flows from investing activities:

Purchase of property and
equipment

(7,353

)

-

Loan made to related parties

179,628

32,319

Net cash provided by
investing activities

172,275

32,319

Cash flows from financing
activities:

Proceeds from/(Repayment of) advances from
related parties

368,832

142,298

Advances from director

-

1,712

Advances from shareholders

-

250,000

Net cash provided by
financing activities

368,832

394,010

Effect of exchange rate
change on cash

(275,289

)

(122,582

)

Net change in cash and
cash equivalents

(851,310

)

(188,018

)

Cash and cash equivalents -
beginning of period

1,226,220

502,029

Cash and cash equivalents -
end of period

$

374,910

$

314,011

The accompanying notes are an integral part of these
consolidated financial statements.

6

Xiangtian (USA) Air Power Co., Ltd.Notes to
Consolidated Financial Statements(Unaudited)

NOTE 1 - NATURE OF OPERATIONS

Xiangtian (USA) Air Power Co., Ltd. (the Company) was
incorporated in the State of Delaware on September 2, 2008 as Goa Sweet Tours
Ltd. The Company was originally formed to provide personalized concierge tour
packages to tourists who visit the State of Goa, India. On April 17, 2012, the
Company entered into Share Purchase Agreements, by and among, Luck Sky
International Investment Holdings Limited (Lucky Sky), an entity owned and
controlled by Zhou Deng Rong, and certain of our former stockholders who owned,
in the aggregate, 7,200,000 shares of the Companys common stock (90% of the
then outstanding shares). Luck Sky purchased all 7,200,000 shares for an
aggregate of $235,000. The sale was completed on May 15, 2012.

On May 25, 2012, the Company formed a corporation under the
laws of the State of Delaware called Xiangtian (USA) Air Power Co., Ltd.
("Merger Sub") and on the same day, acquired one hundred shares of Merger Sub's
common stock for cash. As such, Merger Sub became a wholly-owned subsidiary of
the Company.

Effective as of May 29, 2012, Merger Sub was merged with and
into the Company. As a result of the merger, the Companys name was changed to
Xiangtian (USA) Air Power Co., Ltd.. Prior to the merger, Merger Sub had no
liabilities and nominal assets and, as a result of the merger, the separate
existence of the Merger Sub ceased. The Company was the surviving corporation in
the merger and, except for the name change provided for in the Agreement and
Plan of Merger, there was no change in the directors, officers, capital
structure or business of the Company.

Merger with LuckSky (Hong Kong) Shares Limited

On September 5, 2013, the Company entered into a business
combination by means of merger of LuckSky (Hong Kong) Shares Limited (HK
Shares), a Hong Kong corporation, for 250,000,000 shares of common stock of the
Company. Prior to the merger, HK Shares had no liabilities and nominal assets.
On September 23, 2013, the Company issued 250,000,000 shares of common stock to
the shareholders of HK Shares. Effectively on September 24, 2013, the
shareholders of HK Shares accepted the shares from the Company and surrendered
its control of HK Shares to the Company in exchange of 250,000,000 shares of HK
Shares to be issued to its shareholders. On October 16, 2013, HK Shares
completed the issuance of its 250,000,000 shares accordingly. Management
cancelled HK Shares in October 2014.

Acquisition of Sanhe City Lucksky Electrical Engineering
Co., Ltd.

On July 25, 2014, Luck Sky (Shen Zhen) Aerodynamic Electricity
Limited (Luck Sky Shen Zhen), a corporation incorporated under the laws of the
People Republic of China (PRC), an indirect wholly-owned subsidiary; Sanhe
City Lucksky Electrical Engineering Co., Ltd. (Sanhe), a corporation
incorporated under the laws of the PRC; and Mr. Zhou Jian and Mr. Zhou Deng
Rong, the owners of 97% and 3%, respectively, of Sanhe; entered into a series of
agreements known as variable interest agreements (the VIE Agreements) pursuant
to which Sanhe became Luck Sky Shen Zhens contractually controlled affiliate.
The purpose and effect of the VIE Agreements is to provide Luck Sky Shen Zhen
(our indirect wholly-owned subsidiary) with all of the management, control and
net profits of Sanhe.

7

Simultaneously, the Company entered into a common stock
purchase agreement with Zhou Jian and Zhou Deng Rong, the owners of 97% and 3%,
respectively, of Sanhe, in consideration for the execution of the VIE Agreements
and the acquisition of Sanhe. Pursuant to the Stock Purchase Agreement, the
Company issued Zhou Jian and Zhou Deng Rong 264,850,740 and 8,191,260 shares,
respectively, of our common stock, representing 51.4% of our issued and
outstanding shares of common stock.

The consolidated financial statements of the Company have been
prepared in accordance with generally accepted accounting principles in the
United States of America. This basis of accounting involves the application of
accrual accounting and consequently, revenues and gains are recognized when
earned, and expenses and losses are recognized when incurred. The Companys
consolidated financial statements are expressed in U.S. dollars.

Use of Estimates and Assumptions

The preparation of consolidated financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the period. Actual results could differ from those estimates.

Interim Financial Statements

The accompanying unaudited financial statements have been
prepared in accordance with generally accepted accounting principles (GAAP)
applicable to interim financial information and the requirements of Form 10-Q
and Rule 8-03 of Regulation S-X of the Securities and Exchange Commission.
Accordingly, they do not include all of the information and disclosure required
by accounting principles generally accepted in the United States of America for
complete financial statements. Interim results are not necessarily indicative of
results for a full year. In the opinion of management, all adjustments
considered necessary for a fair presentation of the financial position and the
results of operations and cash flows for the interim periods have been included.
These interim financial statements should be read in conjunction with the
audited financial statements for the year ended July 31, 2016, as not all
disclosures required by generally accepted accounting principles for annual
financial statements are presented. The interim financial statements follow the
same accounting policies and methods of computations as the audited financial
statements for the year ended July 31, 2016.

These interim financial statements should be read in
conjunction with the audited financial statements for the year ended July 31,
2016, as not all disclosures required by generally accepted accounting
principles for annual financial statements are presented. The interim financial
statements follow the same accounting policies and methods of computations as
the audited financial statements for the year ended July 31, 2016.

8

Reclassification

Certain amounts in the prior period financial statements have
been reclassified to conform to the current period presentation. These
reclassifications had no effect on reported net income or losses.

Principle of Consolidation

The consolidated financial statements include the accounts of
the Company, its subsidiaries and VIE for which it is deemed the primary
beneficiary. All significant inter-company accounts and transactions have been
eliminated in consolidation.

The Company evaluates the need to consolidate its VIE in which
equity investors do not have the characteristics of a controlling financial
interest or do not have sufficient equity at risk for the entity to finance its
activities without additional subordinated financial support.

The VIE agreement was not consummated until July 25, 2014,
however, the purpose and design of the establishment of VIE, Sanhe, was to
consolidate common control under the Company. ASC 810-10-25-38F states that a
reporting entitys involvement in the design of a VIE may indicate that the
reporting entity had the opportunity and the incentive to establish arrangements
that result in the reporting entity being the variable interest holder with the
power to direct the activities that most significantly impact the VIEs economic
performance. As both the Company and the acquired VIE, Sanhe, are under the
common control of Zhou Dengrong and Zhou Jian immediately before and after the
acquisition, this transaction was accounted for as a merger under common
control, using merger accounting as if the merger had been consummated at the
beginning of the earliest period presented, and no gain or loss was recognized.
All the assets and liabilities of the VIE, Sanhe, are recorded at carrying
value. Hence, Sanhe was consolidated under the Company since its inception due
to the purpose and design of its establishment.

The following financial statement amounts and balances of the
VIE, which is established on August 6, 2014, were included in the accompanying
consolidated financial statements as of October 31, 2016 and July 31, 2016 and
for the three months ended October 31, 2016 and 2015, respectively:

October 31, 2016

July
31, 2016

(Unaudited)

Total assets

$

15,097,447

$

16,566,891

Total liabilities

7,070,701

7,944,737

For the three

For the three

months

months

Ended

ended

October 31, 2016

October 31, 2015

(Unaudited)

(Unaudited)

Net loss

$

427,653

$

125,656

Fair Value Measurements

The Company applies the provisions of ASC Subtopic 820-10,
Fair Value Measurements, for fair value measurements of financial assets and
financial liabilities and for fair value measurements of nonfinancial items that
are recognized or disclosed at fair value in the financial statements. ASC 820
also establishes a framework for measuring fair value and expands disclosures
about fair value measurements.

9

Fair value is defined as the price that would be received to
sell an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. When determining the fair value
measurements for assets and liabilities required or permitted to be recorded at
fair value, the Company considers the principal or most advantageous market in
which it would transact and it considers assumptions that market participants
would use when pricing the asset or liability.

ASC 820 establishes a fair value hierarchy that requires an
entity to maximize the use of observable inputs and minimize the use of
unobservable inputs when measuring fair value. ASC 820 establishes three levels
of inputs that may be used to measure fair value. The hierarchy gives the
highest priority to unadjusted quoted prices in active markets for identical
assets or liabilities (Level 1 measurements) and the lowest priority to
measurements involving significant unobservable inputs (Level 3 measurements).
The three levels of the fair value hierarchy are as follows:

[ ] Level 2 inputs to the
valuation methodology includes quoted prices for similar assets and liabilities
in active markets, and inputs that are observable for the assets or liability,
either directly or indirectly, for substantially the full term of the financial
instruments.

[ ] Level 3 inputs to the
valuation methodology are unobservable and significant to the fair value.

There were no assets or liabilities measured at fair value on a
recurring basis subject to the disclosure requirements of ASC 820 as of October
31, 2016 and July 31, 2016.

Cash and Cash Equivalents

The Company considers all highly liquid investments with an
original maturity of three months or less when purchased to be cash equivalents.

Inventory

Inventory is stated at the lower of cost or market. Cost is
principally determined using the weighted average basis. Construction costs
incurred on contracts are included in inventories which consist of raw
materials, accessory parts, and contracts work in progress.

Property and equipment

Property and equipment are stated at cost less accumulated
depreciation and impairment losses. Gains or losses on dispositions of property
and equipment are included in operating income (loss). Major additions, renewals
and betterments are capitalized, while maintenance and repairs are expensed as
incurred.

Depreciation and amortization are provided over the estimated
useful lives of the assets using the straight-line method from the time the
assets are placed in service. Estimated useful lives are as follows, taking into
account the assets' estimated residual value:

10

Classification

Estimated useful life

Machinery equipment

5-10 years

Computer and office equipment

3 years

Vehicle

5 years

Property under capital lease

20 years

Revenue Recognition

Sales of power generation system in conjunction of system
installation are recognized under accounting for construction-type contracts,
based on the nature of the contract using the

Completed-Contract Method.

The reason for selecting completed-contract method is (a) The
Companys contract is duration is less than one year and financial position and
results of operations would not vary materially from those resulting from use of
the percentage-of completion method. (b) Reasonably dependable estimate cannot
be made due to nature of contracts. Accordingly, revenue is recognized upon the
completion of the construction, provided persuasive evidence of an arrangement
exists, title and risk of loss has transferred, the fee is fixed and
determinable, and collection is reasonably assured. We provide for any loss that
we expect to incur on these contracts when that loss is probable.

Percentage-of Completion Method

For contracts with long duration and it is practical to make
reasonable estimate, percentage-of completion method is used. Revenue is
recognized based on the percentage of total income. The percentage is based on
incurred costs to date bearing to estimate total cost after giving effect to
estimates of cost to complete based on most recent information. We provide for
any loss that we expect to incur on these contracts when that loss is probable.

Warranty and Returns

The Company generally provides limited warranties for work
performed under its contracts. The warranty periods typically extend for a
limited duration following substantial completion of the Company's work on a
project. At the time a sale is recognized, we record estimated future warranty
costs. Such estimated costs for warranties are included in the individual
project cost estimates for purposes of accounting for long-term contracts.
Generally, the estimated claim rates of warranty are based on actual warranty
experience or Companys best estimate.

No right of return exists on sales of equipment. Replacement
part returns are estimable and accrued at the time a sale is recognized.

Value added taxes

The Company is subject to VAT at a rate of 17% on proceeds
received from customers, and are entitled to a refund for VAT already paid or
borne on the goods purchased by it that have generated the gross sales proceeds.
The VAT balance is recorded in other payables on the balance sheets.

Income Taxes

The Company accounts for income taxes using an asset and
liability approach which allows for the recognition and measurement of deferred
tax assets based upon the likelihood of realization of tax benefits in future years. Under the asset and liability
approach, deferred taxes are provided for the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. A valuation
allowance is provided for deferred tax assets if it is more likely than not
these items will either expire before the Company is able to realize their
benefits, or that future deductibility is uncertain.

11

Under ASC 740, a tax position is recognized as a benefit only
if it is more likely than not that the tax position would be sustained in a
tax examination, with a tax examination being presumed to occur. The evaluation
of a tax position is a two-step process. The first step is to determine whether
it is more-likely-than-not that a tax position will be sustained upon
examination, including the resolution of any related appeals or litigations
based on the technical merits of that position. The second step is to measure a
tax position that meets the more-likely-than-not threshold to determine the
amount of benefit to be recognized in the financial statements. A tax position
is measured at the largest amount of benefit that is greater than 50 percent
likely of being realized upon ultimate settlement. Tax positions that previously
failed to meet the more-likely-than-not recognition threshold should be
recognized in the first subsequent period in which the threshold is met.
Previously recognized tax positions that no longer meet the more-likely-than-not
criteria should be de-recognized in the first subsequent financial reporting
period in which the threshold is no longer met. Penalties and interest incurred
related to underpayment of income tax are classified as income tax expense in
the year incurred. No significant penalties or interest relating to income taxes
have been incurred during the period from July 8, 2013 (inception) to December
31, 2013. US GAAP also provides guidance on de-recognition, classification,
interest and penalties, accounting in interim periods, disclosures and
transition.

Comprehensive Loss

The Company follows the provisions of the Financial Accounting
Standards Board (the FASB) Accounting Standards Codification (ASC) 220
Reporting Comprehensive Income, and establishes standards for the reporting
and display of comprehensive income, its components and accumulated balances in
a full set of general purpose financial statements.

Foreign Currency Translation

The Companys functional currency is Chinese Renminbi (RMB)
as substantially all of the Companys PRC subsidiaries operations use this
denomination. The consolidated financial statements are presented in U.S.
dollars. Foreign denominated monetary assets and liabilities are translated into
their United States dollar equivalents using foreign exchange rates which
prevailed at the balance sheet date. Non-monetary assets and liabilities are
translated at the exchange rates prevailing at the transaction date. Revenues
and expenses are translated at average rates of exchange during the year. Gains
or losses resulting from foreign currency transactions are included in results
of operations.

For the purpose of presenting these financial statements of
subsidiaries in PRC, the Companys assets and liabilities are expressed in US$
at the exchange rate on the balance sheet date, which is 6.7735 and 6.6371 as of
October 31, 2016 and July 31, 2016, respectively; stockholders equity accounts
are translated at historical rates, and income and expense items are translated
at the weighted average exchange rate during the period, which is 6.6805 and
6.3521 for the three months ended October 31, 2016 and October 31, 2015. The
resulting translation adjustments are reported under accumulated other
comprehensive income in the stockholders equity section of the balance sheets.

12

For the purpose of presenting these financial statements of
subsidiaries in Hong Kong, PRC, the Companys assets and liabilities are
expressed in US$ at the exchange rate on the balance sheet date, which is 7.7549
and 7.7588 as of October 31, 2016 and July 31, 2016, respectively; stockholders
equity accounts are translated at historical rates, and income and expense items
are translated at the weighted average exchange rate during the period, which is
7.7564 and 7.7510 the three months ended October 31, 2016 and October 31, 2015,
respectively. The resulting translation adjustments are reported under
accumulated other comprehensive income in the stockholders equity section of
the balance sheets.

Earnings (Loss) per Share

Basic earnings per share are computed by dividing net income
available to common stockholders by the weighted average number of common shares
outstanding during the period, excluding the effects of any potentially dilutive
securities. Diluted earnings per share gives effect to all dilutive potential of
shares of common stock outstanding during the period including stock options or
warrants, using the treasury stock method (by using the average stock price for
the period to determine the number of shares assumed to be purchased from the
exercise of stock options or warrants), and convertible debt or convertible
preferred stock, using the if-converted method. Earnings per share excludes all
potential dilutive shares of common stock if their effect is anti-dilutive.
There were no potential dilutive securities at October 31, 2016 or October 31,
2015.

Recent Accounting Pronouncements

In July 2015, the FASB issued ASU No. 2015-11, Simplifying the
Measurement of Inventory, which modifies existing requirements regarding
measuring inventory at the lower of cost or market. Under existing standards,
the market amount requires consideration of replacement cost, net realizable
value (NRV), and NRV less an approximately normal profit margin. The new ASU
replaces market with NRV, defined as estimated selling prices in the ordinary
course of business, less reasonably predictable costs of completion, disposal
and transportation. This eliminates the need to determine and consider
replacement cost or NRV less an approximately normal profit margin when
measuring inventory. The amendments are effective for the annual period ending
after December 15, 2016, and for annual and interim periods thereafter. Early
application is permitted. The Company is currently assessing this ASUs impacts
on the Companys consolidated results of operations and financial condition.

In August 2014, the Financial Accounting Standards Board issued
ASU No. 2014-15, Presentation of Financial Statements Going Concern (Subtopic
205-40). This standard is intended to define managements responsibility to
evaluate whether there is substantial doubt about an entitys ability to
continue as a going concern and to provide related footnote disclosures. The
amendments contained in this ASU apply to all companies and not-for-profit
organizations. The amendments are effective for the annual period ending after
December 15, 2016, and for annual and interim periods thereafter. Early
application is permitted. The Company is currently assessing this ASUs impact
on the Companys consolidated results of operations and financial condition.

The Company believes that there were no other accounting
standards recently issued that had or are expected to have a material impact on
our financial position or results of operations.

NOTE 3 - GOING CONCERN

The accompanying consolidated financial statements have been
prepared assuming the Company will continue as a going concern. The Company has
incurred losses since its inception resulting in an accumulated deficit of $1,464,309 as of October 31, 2016
and further losses are anticipated in the development of its business raising
substantial doubt about the Companys ability to continue as a going concern.
The ability to continue as a going concern is dependent upon the Company
generating profitable operations in the future and/or obtaining the necessary
financing to meet its obligations and repay its liabilities arising from normal
business operations when they become due. These consolidated financial
statements do not include any adjustments to the recoverability and
classification of recorded asset amounts and classification of liabilities that
might be necessary should the Company be unable to continue as a going concern.

13

The Company expects to finance operations primarily through
cash flow from revenue and capital contributions from principal shareholders. In
the event that we require additional funding to finance the growth of the
Companys current and expected future operations as well as to achieve our
strategic objectives, our principal shareholders have indicated the intent and
ability to provide additional equity financing.

These conditions raise substantial doubt about the Companys
ability to continue as a going concern. The Companys continuation as a going
concern is dependent on our ability to meet obligations as they become due and
to obtain additional equity or alternative financing required to fund operations
until sufficient sources of recurring revenues can be generated. There can be no
assurance that the Company will be successful in its plans described above or in
attracting equity or alternative financing on acceptable terms, or if at all.
The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.

NOTE 4  INVENTORIES

Inventories consist of the following:

October 31,

July 31,

2016

2016

(Unaudited)

Raw materials

$

1,121,405

$

1,151,708

Accessory parts

910,434

929,145

Contracts work in progress

36,005

-

Total

$

2,067,844

$

2,080,853

NOTE 5 - PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consist of the following:

October 31,

July 31,

2016

2016

(Unaudited)

Machinery equipment

$

4,984,986

$

4,951,227

Computer and office equipment

58,444

53,933

Vehicle

67,942

69,339

Total property, plant and equipment

5,111,372

5,074,499

Less: accumulated
depreciation

(615,890

)

(553,764

)

Total

$

4,495,482

$

4,520,735

Total depreciation expenses for the three months ended October
31, 2016 and 2015 were $74,297 and $67,951, respectively. Depreciation relating
to Contract work in progress for the three months ended October 31, 2016 and
2015 were $0and $61,729, respectively, and depreciation relating to general and
administrative expenses for the three months ended October 31, 2016 and 2015
were $74,297and $6,222, respectively.

14

NOTE 6  BILLINGS IN EXCESS OF COSTS

Billings in excess of costs consist of the following:

October 31, 2016

July
31, 2016

(Unaudited)

Costs incurred on uncompleted
contracts

$

1,506,659

$

853,787

Billings to date

(952,240

)

(143,135

)

$

554,419

$

710,652

Included in the accompanying
balance sheets as follows:

Costs in excess of billings on uncompleted
contracts

$

832,390

$

710,652

Billings on uncompleted
contracts in excess of costs

(277,971

)

-

$

554,419

$

710,652

NOTE 7 - RELATED PARTY TRANSACTIONS

On July 25, 2014, Luck Sky Shen Zhen obtained an exclusive,
worldwide, royalty free license from Zhou Deng Rong and Zhou Jian (his son) and
a second exclusive, worldwide royalty free license from LuckSky Group to an
aggregate of 48 Chinese patents and related know how and trade secrets,
including the technology underlying 13 patent applications (the Technology).
The Technology represents all of the patents, patent applications and related
know how and trade secrets owned by the licensors with respect to PV
installations and the air energy storage power generation technology as applied
to commercial and residential buildings, but not wind towers. On July 25, 2014,
Luck Sky Shen Zhen granted Sanhe an exclusive sublicense with respect to the use
of the Technology for commercial and residential buildings, but not for other
uses, including wind towers, vehicles and trains, which sublicense also provides
for a royalty payment to Luck Sky Shen Zhen equal of five percent of Sanhes
revenues.

Sanhe leases its principal office, factory and dormitory from
LuckSky Group in Sanhe City, Hebei Province. LuckSky Group is owned by Zhou Deng
Rong, our former CEO and Zhou Jian, our General Manager and Chairman of the
Board. The space in the office, factory and dormitory being leased are 1296,
5160 and 1200 square meters, respectively. The office and factory space are
leased for a rent of $113,492 (RMB 697,248) per year and the dormitory is leased
for a rent of $21,095 (RMB 129,600) per year. The leases expire on April 30,
2024 and are subject to renewal with a prior two-month written notice. LuckSky
Group is in the process of obtaining the land use approval and ownership
certificate of the leased building.

Construction Project

On April 25, 2014, Sanhe entered into a construction project
agreement with XianningLucksky Aerodynamic Electricity Ltd (XianningLucksky).
As of July 31, 2016, the project was completed and $8,705,527 of revenue and
$7,752,526 of cost of sales were recognized.

On July 26, 2016, Sanhe entered into a construction project
agreement of 3MW PV panel installations with XianningLucksky. As of July 31,
2016, the project was not started. As of October 31, 2016, the accumulated cost
on the construction project was $661,857 and the accumulated billings was
$523,914.

15

On July 26, 2016, Sanhe entered into a construction project
agreement of 4MW PV panel installations with XianningLucksky. As of October 31,
2016, the accumulated cost on the construction project was $17,538 and the
accumulated billings was $299,379.

On July 7, July 28 and August 5, 2016, Sanhe entered into three
construction project agreementsfor 93KW, 365KW and 75KW PV panel installations
with Sanhe Liguang Kelitai Equipment Ltd (Sanhe Keilitai)., Sanhe Keilitai is
majority (95%) owned by Zhou Jian, our Chairman of the Board. As of October 31,
2016, the project is still in the preparation stage and no costs have been
recognized.

Due from related parties

Sanhe has been working on a construction project for
XianningLucksky, which agreed to reimburse Sanhe for the cost of the project.
The accumulated cost on the construction project was $70,708 and $0 as of
October 31, 2016 and July 31, 2016.

Due to related parties

Until August 1, 2015, Sanhe leased a second factory and office
in Sanhe City from Sanhe Dong Yi Glass Machine Company Limited, which is owned
by Zhou Deng Rong. A portion of this facility was used by Sanhe to demonstrate
its products but the facility was primarily intended as a backup to the first
facility in Sanhe City and/or for expansion. The factory and office are 4,748.96
square meters. The rent paid by Sanhe for the factory and the office was RMB1,
306,500 per year. As of October 31, 2016, and July 31, 2016, the rental fee
accrued but unpaid under the leases from LuckSky Group and Sanhe Dong Yi were
$241,105 and $280,304, respectively. On August 1, 2015, the two parties
terminated the finance leasing. As the Company no longer needs the factory and
office, the assets were returned to the lessor effective August 1, 2015.

On July 27, 2016, Xianning Xiangtian Air Energy Electric Co.,
Ltd. (XianningXiangtian), the wholly-owned subsidiary of the Company, entered
into a rental agreement with XianningLucksky. The space in the factory being
leased is 4628 square meters. The factory space is leased for a rent of $83,132
(RMB 555,360) per year. The lease expireson July 31, 2018 and is subject to
renewal with a prior one-month written notice.

From time to time, Mr. Zhou Deng Rong prepaid some expenses for
the Company. As of October 31, 2016 and July 31, 3016, amounts due to related
parties were as follows:

October 31, 2016

July
31, 2016

(Unaudited)

Rental fees:

LuckSky Group

305,178

280,304

Sanhe Dong Yi (Capital lease
payable)

241,105

246,060

XianningLucksky

20,498

-

Prepaid expenses on behalf of the company:

Zhou Deng Rong

1,433,857

1,190,370

Construction projects:

Receipt in advance

$

88,580

$

-

Total

$

2,089,218

$

1,716,734

16

Due to Directors

From time to time, the Company receives advances from its
directors. As of October 31, 2016 and July 31, 2016, the Company received
$415,084 and $414,876, respectively. The Company used the funds for its
operations. These advances are due on demand, unsecured and non-interest
bearing.

NOTE 8 -GOVERNMENT CONTRIBUTION PLAN

The Company participates in a government-mandated
multi-employer defined contribution plan pursuant to which certain retirement,
medical and other welfare benefits are provided to employees. Chinese labor
regulations require the Company to pay to the local labor bureau a monthly
contribution at a stated contribution rate based on the monthly basic
compensation of qualified employees. The relevant local labor bureau is
responsible for meeting all retirement benefit obligations; the Company has no
further commitments beyond its monthly contribution.

The outstanding amount was $101,887 and $92,134as of October
31, 2016 and July 31, 2016, respectively.

NOTE 9 - STATUTORY RESERVE

Pursuant to the laws applicable to the PRC, PRC entities must
make appropriations from after-tax profit to the non-distributable statutory
surplus reserve fund. Subject to certain cumulative limits, the statutory
surplus reserve fund requires annual appropriations of 10% of after-tax profit
until the aggregated appropriations reach 50% of the registered capital (as
determined under accounting principles generally accepted in the PRC ("PRC
GAAP") at each year-end). For foreign invested enterprises and joint ventures in
the PRC, annual appropriations should be made to the reserve fund. For foreign
invested enterprises, the annual appropriation for the reserve fund cannot be
less than 10% of after-tax profits until the aggregated appropriations reach 50%
of the registered capital (as determined under PRC GAAP at each year-end). If
the Company has accumulated loss from prior periods, the Company is able to use
the current period net income after tax to offset against the accumulate loss.

NOTE 10 - CAPITAL STOCK AND EQUITY TRANSACTIONS

Common Stock

The total number of common shares authorized that may be issued
by the Company is 1,000,000,000 shares with a par value of $0.001 per share.

During the period ended July 31, 2009, the Company issued
5,000,000 shares of common stock for total cash proceeds of $25,000 to the
Companys sole director and officer. During the year ended July 31, 2010, the
Company sold 3,000,000 shares of common stock for total cash proceeds of
$30,000.

On September 23, 2013, the Company issued 250,000,000 shares of
common stock to the shareholders of HK Shares, in exchange of 250,000,000 shares
of HK Shares.

On September 23, 2013, the Company issued a total of 67,000,000
shares of restricted common stock at $0.001 per share, such that 60,000,000
shares were issued to Mr. Roy Thomas Phillips, who was then a consultant to the
Company and later served as the acting CFO of the Company beginning July 29,
2014, and 7,000,000 shares were issued to two other non-related parties. The

17

shares were issued in contemplation of a secondary offering.
The Company takes the position that these shares should be cancelled since no
secondary offering was consummated. The Company is taking steps to have these
shares canceled. The Company valued the 67,000,000 shares of common stock issued
at $67,000 as there was no market for the Companys common stock and it has
limited or no trading; and there is thought to be minimal value in the Company
at the time of issuance, therefore the par value is thought to match the assumed
market price of the Companys common stock which is at $0.001 per share. On July
24, 2015, 7,000,000 shares issued to two other non-related parties were
cancelled.

On July 25, 2014, we entered into the Stock Purchase Agreement
in connection with the acquisition of Sanhe with Zhou Jian and Zhou Deng Rong,
the owners of 97% and 3%, respectively, of Sanhe. We agreed to issue to Zhou
Jian and Zhou Deng Rong 264,850,740 and 8,191,260 shares, respectively, of our
common stock, representing 51.4% of our issued and outstanding shares of common
stock.

Preferred Stock

The total number of preferred shares authorized that may be
issued by the Company is 100,000,000 shares with a par value of $0.001 per
share. The preferred shares may be issued in one or more series, from time to
time, with each series to have such designation, relative rights, preference or
limitations, as adopted by the Companys Board of Directors. No preferred shares
have been issued.

NOTE 11 - INCOME TAXES

United States

Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. The cumulative
tax effect at the expected rate of 34% of significant items comprising the net
deferred tax amount is at October 31, 2016 and July 31, 2016 as follows:

October 31, 2016

July
31, 2016

(Unaudited)

Deferred tax assets:

Net operating losses

$

76,320

$

228,278

Total deferred tax assets

76,320

228,278

Less: valuation allowance

(76,320

)

(228,278

)

Deferred tax assets, net

$

-

$

-

As of October 31, 2016, for U.S. federal income tax reporting
purposes, the Company has approximately $956,323 of unused net operating losses
(NOLs) available for carry forward to future years. The benefit from the carry
forward of such NOLs will begin expiring during the year ended July 31, 2029.
Because United States tax laws limit the time during which NOL carry forwards
may be applied against future taxable income, the Company may be unable to take
full advantage of its NOLs for federal income tax purposes should the Company
generate taxable income. Further, the benefit from utilization of NOL carry
forwards could be subject to limitations due to material ownership changes that
could occur in the Company as it continues to raise additional capital. Based on
such limitations, the Company has significant NOLs for which realization of tax
benefits is uncertain.

18

Hong Kong

The Companys subsidiaries established in HKSAR are subject to
Hong Kong Profits Tax. However, these subsidiaries did not earn any income
derived in Hong Kong from its date of incorporation to October 31, 2016, and
therefore were not subject to Hong Kong Profits Tax.

PRC

The Companys subsidiaries established in PRC are subject to
income tax rate of 25%.

1) Luck
Sky Shenzhen

For the three months ended October 31, 2016 and 2015, Luck Sky
Shenzhen had $1,111 in net profit and $27,098 in net loss,$278 income tax was
accrued in 2016 accordingly.

2) Sanhe

For the three months ended October 31, 2016, Sanhe had $427,653
in net loss. Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. The cumulative
tax effect at the expected rate of 25% of significant items comprising the net
deferred tax amount is at October 31, 2016 and July 31, 2016 as follows:

October 31, 2016

July
31, 2016

(Unaudited)

Deferred tax assets:

-

-

Net operating losses

$

-

$

-

Total deferred tax assets

Less: valuation allowance

-

-

Deferred tax assets, net

$

-

$

-

Deferred tax liabilities:

Timing differences of revenue recognition

$

72,946

$

107,609

Total deferred tax liabilities

72,946

107,609

Significant components of income tax expense for the three
months ended October 31, 2015 and

For the three months

For the three months

Ended

ended

October 31, 2016

October 31, 2015

(Unaudited)

(Unaudited)

Current tax expense

$

(235

)

$

48,386

Deferred tax expense

(32,948

)

(81,238

)

Tax expense (benefit)

$

(33,183

)

$

(32,852

)

19

Reconciliation of Effective Income Tax Rate

For the three months

For the three months

ended

ended

October 31, 2016

October 31, 2015

(Unaudited)

(Unaudited)

Statutory U.S. tax rate

34.00%

34.00%

PRC Statutory Tax Rate

25.00%

25.00%

HK Statutory Tax Rate

15.00%

15.00%

Less: Valuation Allowance

(73.96%

)

(27.47%

)

Deferred Tax

4.81%

(33.13%

)

Tax expense (benefit)

4.85%

13.40%

NOTE 12. COMMITMENTS, CONTINGENCIES, RISKS AND
UNCERTAINTIES

Capital Commitments

The Company purchased property, plant and equipment which the
payment was due within one year. As of October 31, 2016 and July 31, 2016, the
Company has a capital commitment of $16,490,310 and $9,247,569, respectively.

Operation Commitments

The total future minimum lease payments under the
non-cancellable operating lease with respect to the office and the dormitory as
of October 31, 2016 are payable as follows:

Year ending July 31, 2017

153,046

Year ending July 31, 2018

204,061

Year ending July 31, 2019

122,071

Year ending July 31, 2020

122,071

After 2020

457,766

Total

$

1,059,015

Rental expense of the Company for the three months ended
October 31, 2016 and 2015 were $51,726 and $83,962, respectively.

Credit risk

Cash deposits with banks are held in financial institutions in
China, which are not federally insured deposit protection. Accordingly, the
Company has a concentration of credit risk related to these uninsured bank
deposits. The Company has not experienced any losses in such accounts and
believes it is not exposed to significant credit risk in this area.

20

Contingencies

On September 23, 2013, the Company issued 60,000,000 shares of
restricted common stock at $0.001 per share to Mr. Roy Thomas Phillips, who was
then a consultant to the Company and later served as the acting CFO of the
Company beginning July 29, 2014, and two other non-related parties, obtained a
total of 7,000,000 shares of restricted common stock. The shares were issued in
contemplation of a secondary offering. The Company takes the position that these
shares should be cancelled since no secondary offering was consummated. The
Company is taking steps to have these shares canceled. The Company valued the
67,000,000 shares of common stock issued at $67,000 as there was no market for
the Companys common stock and it has limited or no trading; and there is thought to be minimal
value in the Company at the time of issuance, therefore the par value is thought
to match the assumed market price of the Companys common stock which is at
$0.001 per share. The issuance of these securities could result in further
dilution to the Companys stockholders which effects the earnings (loss) per
share amount of the Company. The Company might incur additional expenses to have
these shares canceled. On July 24, 2015, 7,000,000 shares issued to two other
non-related parties were canceled. For the year ended July 31, 2015, the
dilutive effect of not canceling the 60,000,000 shares is incorporated in the
consolidated financial statements as the Company recorded such shares as issued
and outstanding. The loss per share remained $0.00 with the dilutive effect of
not canceling such shares. If the shares are not voluntarily returned for
cancellation, the Company will need to commence litigation in Delaware to obtain
a judgment to cancel the shares for lack of consideration. At this time, the
Company is unable to estimate the cost such litigation if it takes place.

21

Item 2  Managements Discussion and Analysis of Financial
Condition and Results of

Overview

Xiangtian (USA) Air Power Co., Ltd. was originally incorporated
as Goa Sweet Tours Ltd. in the State of Delaware on September 2, 2008. We were
originally formed to provide personalized concierge tour packages to tourists
who visit the State of Goa, India.

On April 17, 2012, Goa Sweet Tours, Ltd. entered into Share
Purchase Agreements (the Purchase Agreements), with Luck Sky International
Investment Holdings Limited, an entity owned and controlled by Zhou Deng Rong,
and certain of our former stockholders who owned, in the aggregate, 7,200,000
shares of our common stock (90% of the then outstanding shares). Luck Sky
International Investment Holdings Limited purchased such shares for an aggregate
consideration of $235,000. The sale of such shares closed on May 15, 2012.

On May 25, 2012, Goa Sweet Tours, Ltd. formed a corporation
under the laws of the State of Delaware called Xiangtian (USA) Air Power Co.,
Ltd. ("Merger Sub") for the purpose of changing its name. On the same day, we
acquired one hundred percent of the total outstanding shares of Merger Sub's
common stock for cash. As such, Merger Sub became our wholly-owned subsidiary.

Effective as of May 29, 2012, Merger Sub was merged with and
into the Company. As a result of the merger, the Companys corporate name was
changed to Xiangtian (USA) Air Power Co., Ltd. Prior to the merger, Merger Sub
had no liabilities and nominal assets and, as a result of the merger, the
separate existence of the Merger Sub ceased. The Company was the surviving
corporation in the merger and, except for the name change provided for in the
Agreement and Plan of Merger, there was no change in the directors, officers,
capital structure or business of the Company.

On September 24, 2013, the Company acquired all of the shares
of common stock of Lucksky (Hong Kong) Shares Limited, a Hong Kong corporation,
for 250,000,000 shares of common stock of the Company, and agreed to acquire
100% of the shares of Sanhe City LuckSky Electrical Engineering Limited
(Sanhe) common stock for the Companys common stock. As of the acquisition
merger, Lucksky (Hong Kong) Shares Limited and Sanhe had no liabilities and
nominal assets. Effective as of September 24, 2013, Lucksky (Hong Kong) Shares
Limited was merged with and into the Company and the Company was the surviving
entity. The Company acquired Sanhe in July 2014.

On May 30, 2014, the Company entered into the Stock Purchase
Agreement with Zhou Jian, the sole shareholder of Luck Sky (Hong Kong)
Aerodynamic Electricity Limited (LuckSky Aerodynamic). Effective May 30, 2014
the Company purchased 100% of the issued and outstanding shares of common stock
of Luck Sky Aerodynamic , and the Company paid Zhou Jian a purchase price in the
amount of HKD $10,000.00 (approximately USD$1,289.98) in cash (the
Acquisition). Neither Luck Sky Shen Zhen nor Luck Sky Aerodynamic had any
operating business and nominal or liabilities and nominal assets as of the date
of the Acquisition. As a result of the Acquisition, Luck Sky Aerodynamic became
our wholly owned subsidiary and Luck Sky Shen Zhen became our indirect
subsidiary through Luck Sky Aerodynamic.

LuckSky Group was established in 2000 by Zhou Deng Rong after
he obtained a series of patents and developed the air compression and related
technology. Sanhe was established in July 2013 and was under common control with
LuckSky Group. Since inception, Sanhe served as a distributor of products of the
LuckSky Group and its subsidiaries.

22

During the three months ended June 30, 2014, LuckSky Group
provided Sanhe with additional working capital and transferred to Sanhe its
assets and liabilities related to the compressed air energy storage power
generation technology and PV panel installations, but retained its other assets.
On April 1, 2014, LuckSky Group loaned Sanhe RMB3, 000,000. The equipment,
including machinery, was sold to Sanhe for RMB7, 681,000, its book value,
Xiangtian Kelitai, Yanjiao Branch, a division of LuckSky Group on May 26, 2014.
On April 30, 2014, the inventory was sold to Sanhe by Xiangtian Kelitai, Yanjiao
Branch, and a division of LuckSky Group for RMB 130,918.80, its historical
value. On May 19, 2014, Sanhe entered into an office equipment transfer
(purchase) agreement with Xiangtian Kelitai, Yanjiao Branch, a division of
LuckSky Group for a purchase price of RMB162, 900. Sanhe entered into leases
with LuckSky Group for a portion of the factory, office space and dormitory
located in Sanhe City and a lease with Dong Yi Glass Machine Company Limited,
which is owned by Deng Zhou Rong, our former CEO, for a second factory and
office space. In addition, 48 employees transferred from LuckSky Group to Sanhe,
including all personnel related to the projects under construction and
development and administrative and finance personnel.

Acquisition of Sanhe

On July 25, 2014, Sanhe and Luck Sky Shen Zhen and Sanhes
shareholders entered into a series of agreements known as variable interest
agreements (the VIE Agreements) pursuant to which Sanhe became LuckSky Shen
Zhens contractually controlled affiliate. The VIE Agreements include the
Framework Agreement on Business Cooperation, the Exclusive Management Consulting
and Training and Technical Services Agreement, the Exclusive Option Agreement,
the Equity Pledge Agreement, the Know-How Sub-License Agreement and the
Power-of-Attorney. The purpose and effect of the VIE Agreements is to provide
LuckSky Shen Zhen (our indirect wholly-owned subsidiary) with all of the
management and control of Sanhe and all of its net income. While LuckSky Shen
Zhen does not actually own at present any of the equity and shares in Sanhe, the
purpose and effect of the VIE Agreements is to instill in Luck Sky Shen Zhen
total management and voting control of Sanhe for all material purposes. The use
of VIE agreements is a common structure used to acquire PRC corporations,
particularly in certain industries in which foreign investment is restricted or
forbidden by the PRC government.

Results of Operations

The following discussion should be read in conjunction with the
unaudited condensed consolidated Financial Statement of the Company for the
three-month period ended October 31, 2016 and 2015 and related notes thereto.

Three-month period ended October 31, 2016 compared to
three-month period ended October 31, 2015

Revenue

We have recognized $86,760 and $66,610 revenue for the three
months ended October 31, 2016 and 2015. A couple of small projects were
completed in this period and the revenue referred to arises from selling air
compression related machines in the comparison period.

Cost of Sales

We have recognized $71,599 and $62,015 cost of revenue for the
three months ended October 31, 2016 and 2015. The costs were in line with the
revenue.

23

Gross Profit

Gross profit was $15,161 for the three months ended October 31,
2016, compared to $4,595 for the three months ended October 31, 2015.

Operating Expenses

For the three months ended October 31, 2016, we have incurred
total operating expenses in the amount of $706,852, which mainly comprised
selling expenses of $13,027, professional expenses of $197,745, salary expenses
of $207,888, rental fees of $34,643, and general and administrative expenses
totaling $253,549. For the three months ended October 31, 2015, we have incurred
total operating expenses in the amount of $363,652, which mainly comprised
selling expenses of $4,510, professional expenses of $89,544, salary expenses of
$92,923, rental fees of $85,462, and general and administrative expenses
totaling $91,213.The increase in operating expenses by $343,200, or 94%, was
primarily due to the increase amounts of professional expense for consultancy
and salary expenses for a larger scale of operations.

Liquidity and Capital Resources

As of October 31, 2016, we had a cash balance of $374,910.
During the three months ended October 31, 2016, net cash used in operating
activities totaled $1,117,128. Net cash provided from investing activities
totaled $172,275. Net cash provided by financing activities during the period
totaled $368,832. The resulting change in cash for the period was a decrease of
$851,310, which was primarily due to cash outflow to suppliers, albeit we had a
cash inflow from related parties and customers.

As of October 31, 2015, we had a cash balance of $314,011.
During the three months ended October 31, 2015, net cash used in operating
activities totaled $491,765. Net cash provided from investing activities totaled
$32,319. Net cash provided by financing activities during the period totaled
$394,010. The resulting change in cash for the period was a decrease of
$188,018, which was primarily due to cash outflow to suppliers, albeit the cash
inflow of the amounts due from related parties and shareholders.

As of October 31, 2016, we had current liabilities of
$7,722,781, which was mainly comprised of accounts payable and accrued
liabilities of $4,157,651,amount due to directors of $415,084, amount due to
related parties of $2,089,218, advance from customers of $118,550,deferred tax
liabilities of $72,946, other payables of$269,045 and income tax payable of
$322,316 and net Advance billings of $277,971. As of July 31, 2016, we had
current liabilities of $8,275,631, which was mainly comprised of accounts
payable and accrued liabilities of $4,851,630, amount due to directors of
$414,876, amount due to related parties of $1,716,734, advance from customers of
$620,814, deferred tax liabilities of $107,609, other payables of$234,791 and
income tax payable of $329,177.

We had net assets of $7,652,604 and $8,502,334 as of October
31, 2016 and July 31, 2016, respectively.

As of October 31, 2016, we have sixteen project contracts.
Seven were completed; two of them are in process, two of them is being canceled
andfiveare about to start. Three projects in Shandong province commenced
operations in 2015, one project in Fujian province commenced operation in
February 2016, the two projects in Hubei and Zhejiang commenced operations in
March 2016 and one in Hubei commenced in April 2016. The projects in Shanxi
province and Sichuan province were cancelled. The project in Heilongjiang is
about to completed in December 2016. The other two projects in Hubei is expected to be
completed in the first quarter of 2017.We are dependent on these projects for
all our projected revenue until we obtain additional customers and any material
delay or reduction in the projected cash receipts will adversely affect our
operations. While we expect to generate revenue on the completion of our
projects to meet the liquidity and capital resources of our operations, delayed
receipts may cause going concern issues.

24

We expect to finance operations from progress billings from
ongoing projects and through non-interest bearing loans from the Companys
directors. We estimate that our cash and cash equivalents and projected cash
receipts from operations are sufficient to fund operations for the next six
months. However, additional funds may be required given our continued losses
from operations. Additional funding may come from equity financing from the sale
of our common stock or from borrowings, but there can be no assurance that such
financing will be available on acceptable terms. If we are successful in
completing an equity financing, existing shareholders will experience dilution
of their interest in our company.

The Company has incurred losses since its inception resulting
in an accumulated deficit of $1,464,309 as of October 31, 2016 and further
losses are anticipated in the development of its business raising substantial
doubt about the Companys ability to continue as a going concern. The ability to
continue as a going concern is dependent upon the Company generating profitable
operations in the future and/or obtaining the necessary financing to meet its
obligations and repay its liabilities arising from normal business operations
when they become due. Our future financial results are also uncertain due to a
number of factors, some of which are outside our control. These risk factors
include, but are not limited to:

our ability to raise additional funding;

the results of our proposed operations.

Going Concern Consideration

Our operations and financial results are subject to numerous
various risks and uncertainties that could adversely affect our business,
financial condition and results of operations.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements including
arrangements that would affect our liquidity, capital resources, market risk
support and credit risk support or other benefits.

Critical Accounting Policies and Estimates

Use of Estimates and Assumptions

The preparation of consolidated financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the period. Actual results could differ from those estimates.

25

Fair Value Measurements

The Company applies the provisions of ASC Subtopic 820-10,
Fair Value Measurements, for fair value measurements of financial assets and
financial liabilities and for fair value measurements of nonfinancial items that
are recognized or disclosed at fair value in the financial statements. ASC 820
also establishes a framework for measuring fair value and expands disclosures
about fair value measurements.

Fair value is defined as the price that would be received to
sell an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. When determining the fair value
measurements for assets and liabilities required or permitted to be recorded at
fair value, the Company considers the principal or most advantageous market in
which it would transact and it considers assumptions that market participants
would use when pricing the asset or liability.

ASC 820 establishes a fair value hierarchy that requires an
entity to maximize the use of observable inputs and minimize the use of
unobservable inputs when measuring fair value. ASC 820 establishes three levels
of inputs that may be used to measure fair value. The hierarchy gives the
highest priority to unadjusted quoted prices in active markets for identical
assets or liabilities (Level 1 measurements) and the lowest priority to
measurements involving significant unobservable inputs (Level 3 measurements).
The three levels of the fair value hierarchy are as follows:

[ ]
Level 2 inputs to the valuation methodology include quoted prices for
similar assets and liabilities in active markets, and inputs that are observable
for the assets or liability, either directly or indirectly, for substantially
the full term of the financial instruments.

[ ]
Level 3 inputs to the valuation methodology are unobservable and
significant to the fair value.

There were no assets or liabilities measured at fair value on a
recurring basis subject to the disclosure requirements of ASC 820 as of October
31, 2015 and July 31, 2015.

Billings in Excess of Costs

Billings in excess of costs is comprised of cash collected from
customers and billings to customers on contracts in advance of work performed,
including advance payments negotiated as a contract condition. Generally,
unearned project-related costs will be earned over the next twelve months.

Revenue Recognition

Sales of power generation system in conjunction of system
installation are recognized under accounting for construction-type contracts,
using the completed contract method. Accordingly, revenue is recognized upon the
completion of the construction, provided persuasive evidence of an arrangement
exists, title and risk of loss has transferred, the fee is fixed and
determinable, and collection is reasonably assured. We provide for any loss that
we expect to incur on these contracts when that loss is probable.

26

Warranty and Returns

The Company generally provides limited warranties for work
performed under its contracts. The warranty periods typically extend for a
limited duration following substantial completion of the Company's work on a
project. At the time a sale is recognized, we record estimated future warranty
costs. Such estimated costs for warranties are included in the individual
project cost estimates for purposes of accounting for long-term contracts. The
warranty cost is estimated based on our experience with the type of work and any
known risks relative to the project and was not material during the periods
ended October 31, 2016 and July 31, 2016.

No right of return exists on sales of equipment. Replacement
part returns are estimable and accrued at the time a sale is recognized.

Recent Accounting Pronouncements

In July 2015, the Financial Accounting Standards Board (FASB)
issued ASU No. 2015-11, Simplifying the Measurement of Inventory, which modifies
existing requirements regarding measuring inventory at the lower of cost or
market. Under existing standards, the market amount requires consideration of
replacement cost, net realizable value (NRV), and NRV less an approximately
normal profit margin. The new ASU replaces market with NRV, defined as estimated
selling prices in the ordinary course of business, less reasonably predictable
costs of completion, disposal and transportation. This eliminates the need to
determine and consider replacement cost or NRV less an approximately normal
profit margin when measuring inventory. The amendments are effective for the
annual period ending after December 15, 2016, and for annual and interim periods
thereafter. Early application is permitted. The Company is currently assessing
this ASUs impacts on the Companys consolidated results of operations and
financial condition.

In February 2015, the FASB issued ASU No. 2015-02,
Consolidation (Topic 810): Amendments to the Consolidation Analysis. The new
consolidation standard changes the way reporting enterprises evaluate whether
(a) they should consolidate limited partnerships and similar entities, (b) fees
paid to a decision maker or service provider are variable interests in a VIE,
and (c) variable interests in a VIE held by related parties of the reporting
enterprise require the reporting enterprise to consolidate the VIE. The guidance
is effective for public business entities for annual and interim periods in
fiscal years beginning after December 15, 2015. Early adoption is allowed,
including early adoption in an interim period. A reporting entity may apply a
modified retrospective approach by recording a cumulative-effect adjustment to
equity as of the beginning of the fiscal year of adoption or may apply the
amendments retrospectively. The Company is currently assessing the impact of the
adoption of this guidance on the consolidated financial statements.

In August 2014, the FASB issued ASU No. 2014-15, Presentation
of Financial Statements Going Concern (Subtopic 205-40). This standard is
intended to define managements responsibility to evaluate whether there is
substantial doubt about an entitys ability to continue as a going concern and
to provide related footnote disclosures. The amendments contained in this ASU
apply to all companies and not-for-profit organizations. The amendments are
effective for the annual period ending after December 15, 2016, and for annual
and interim periods thereafter. Early application is permitted. The Company is
currently assessing this ASUs impact on the Companys consolidated results of
operations and financial condition.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from
Contracts with Customers, which provides a single comprehensive model to be used
in the accounting for revenue arising from contracts with customers and supersedes most current
revenue recognition guidance, including industry-specific guidance. The
standards stated core principle is that an entity should recognize revenue to
depict the transfer of promised goods or services to customers in an amount that
reflects the consideration to which the entity expects to be entitled in
exchange for those goods or services. To achieve this core principle the ASU
includes provisions within a five step model that includes identifying the
contract with a customer, identifying the performance obligations in the
contract, determining the transaction price, allocating the transaction price to
the performance obligations, and recognizing revenue when (or as) an entity
satisfies a performance obligation. The standard also specifies the accounting
for some costs to obtain or fulfill a contract with a customer and requires
expanded disclosures about revenue recognition. The standard provides for either
full retrospective adoption or a modified retrospective adoption by which it is
applied only to the most current period presented. This ASU is effective January
1, 2017. The Company is currently assessing this ASUs impact on the Companys
consolidated results of operations and financial condition.

27

The Company believes that there were no other accounting
standards recently issued that had or are expected to have a material impact on
our financial position or results of operations.

Item 3  Quantitative and Qualitative Disclosures About
Market Risk

Foreign Exchange Risk

While our reporting currency is the US dollar, almost all of
our consolidated revenues and consolidated costs and expenses are denominated in
RMB. All of our assets are denominated in RMB except for some cash and cash
equivalents and accounts receivables. As a result, we are exposed to foreign
exchange risk as our revenues and results of operations may be affected by
fluctuations in the exchange rate between US dollar and RMB. The RMB has
recently depreciated against the US dollar and if the RMB depreciates further
against the US dollar, the value of our RMB revenues, earnings and assets as
expressed in our US dollar financial statements will decline. We have not
entered into any hedging transactions in an effort to reduce our exposure to
foreign exchange risk.

Inflation

Inflationary factors such as increases in the costs of our
products and overhead costs may adversely affect our operating results.
Inflation in China has recently increased substantially. The inflation rate in
China was reported at approximately 1.8% percent for 2016 and 1.4% for 2015(see
http://www.statista.com/statistics/270338/inflation-rate-in-china/). These
factors have led to the adoption by the Chinese government, of various
corrective measures designed to restrict the availability of credit or regulate
growth and contain inflation. Price inflation can affect our ability to maintain
current levels of gross margin and selling and distribution, general and
administrative expenses as a percentage of net revenues if we are unable to pass
along raw material price increases to customers. Accordingly, inflation in China
may weaken our competitiveness domestically or in international markets.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The term disclosure controls and procedures (defined in SEC
Rule 13a-15(e)) refers to the controls and other procedures of a company that
are designed to ensure that information required to be disclosed by a company in
the reports that it files under the Securities Exchange Act of 1934 (the Exchange Act) is recorded, processed, summarized
and reported within required time periods. The Companys management, with the
participation of the Chief Executive Officer and Acting Chief Financial Officer,
has evaluated the effectiveness of the Companys disclosure controls and
procedures as of the end of the period covered by this quarterly report on Form
10-Q (the Evaluation Date). Based on that evaluation, the Companys Chief
Executive Officer and Acting Chief Financial Officer have concluded that,
because of material weaknesses, our internal control over financial reporting
was not effective.

28

The material weaknesses we noticed include a (i) lack of
accounting personnel with appropriate knowledge of accounting principles
generally accepted in the United States (U.S. GAAP), (ii) lack of a
comprehensive accounting policies and procedures manual in accordance with U.S.
GAAP, and (iii) lack of risk assessment process.

In order to improve the efficiency of our internal control over
financial reporting, we have taken and are implementing the following
measures:

• We plan to establish a desired level of corporate
governance with regard to identifying and measuring the risk of material
misstatements.

• We will establish a key monitoring mechanism such
as independent directors and an audit committee to oversee and monitor the
Companys risk management, business strategies and financial reporting
procedure.

• We plan to appoint a suitably qualified Chief
Financial Officer.

• We plan to strengthen our financial team by
employing more qualified accountant(s) to enhance the quality of our financial
reporting function.

Changes in internal controls.

The term internal control over financial reporting (defined
in SEC Rule 13a-15(f)) refers to the process of a company that is designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. The Companys management, with
the participation of the Chief Executive Officer and Acting Chief Financial
Officer, has evaluated any changes in the Companys internal control over
financial reporting that occurred during the quarter ended October 31, 2016, and
they have concluded that there was no change to the Companys internal control
over financial reporting that has materially affected, or is reasonably likely
to materially affect, the Companys internal control over financial
reporting.

29

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

The Company currently is not a party to any legal proceedings
and, to the Companys knowledge; no such proceedings are threatened or
contemplated.

Item 1A. Risk Factors

There have been no material changes from the risk factors
disclosed in our annual report on Form 10-K for the year ended July 31,
2016.Additional risks and uncertainties which are not presently known to us,
which we currently deem immaterial or which are similar to those faced by other
companies in our industry or business in general, may also materially and
adversely affect any of our business, financial position or future results.

Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.

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